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An Unsecured Loan - During the Credit Crunch

Despite government efforts to bail out the financial sector, the economy remains in an uproar. You may be feeling the effects of the credit crunch when you apply for an unsecured loan. Lending institutions and banks are hesitant to loan money and when they do, they are very selective about the borrowers that they accept. You can, however, make your application more appealing to improve your chances of being one of the lucky few who can borrow money during this tumultuous period in financial history.

Clean Up Your Credit

Even in a good economy, an unsecured loan is a risky transaction for any bank or lender. Unlike a secured loan that has collateral standing good in the event that you should default or fail to honor the terms of your loan agreement, an unsecured loan is based solely upon your personal credibility and creditworthiness. Therefore, if you have derogatory items on file with any of the three major credit reporting bureaus, you will need to clean up your act before you apply for your unsecured loan.

Your first step should be to pull your credit report from the bureaus - check all three for inaccuracies and erroneous information that you do not recognize. Some studies suggest that up to one-half of all credit reports contain false information. If you find errors on your report - immediately contact the bureau in question. An investigation must legally be launched and oftentimes these items are deleted.

Contact creditors who have listed negative items on your report to try to negotiate repayment. Oftentimes, creditors are willing to work with you to remove the item if you are willing to allow them to recoup their money. If you are successful in the renegotiation process, be sure to follow through on your new agreement. Most creditors will remove an item once you have shown good faith by making several payments toward the debt.

Secured Credit Cards Add Valuable Points

Next, apply for one to two secured credit cards. A secured credit card is simply a credit card that you place a deposit against with the issuer. Your credit line will be equal to the amount that you deposit. Use your secured credit card account(s) to pay for things that you ordinarily buy, and then pay off the amount charged each month while maintaining a twenty-percent balance. It is very important to leave a balance on the card to show responsibility in managing your available credit. After six months of good payments, a secured credit card can add dozens of points to your card - double that amount for two secured credit cards.

Cosigner Improves Your Chances

If you have someone who will consider cosigning your unsecured loan with you, you further improve your chances. Having a cosigner can also get you a lower interest rate on your loan. A cosigner can be your parent, friend, or other person who knows you and trusts that you will pay. Some unsecured loan processors offer to release your cosigner from any liability once you have established a good payment history with them, usually after one year. This option may improve your chance of finding a cosigner.

Even in a credit crunch, online lenders tend to have higher approval rates and lower interest rates for unsecured loans. Your unsecured loan can be totally processed online and your money deposited into your banking account shortly after approval.